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Agricultural Outlook
By Kent Thiesse
Farmer optimism at high levels this summer R ecent surveys have shown that optimism among farmers for both the current ag economy and the future outlook for farm profitability are quite favorable. This optimism is not surprising, given the much higher levels of net farm income in 2020, the current strength in most of the commodity markets, and the prospects for a profitable year in 2021 in most ag sectors. The 2020 net farm income levels in that region were enhanced by robust crop profits that resulted from above average crop yields, improved grain market prices, and significant levels of government program payments. Livestock profit margins were also improved compared to recent years; however, at much more modest levels than crop profits. Purdue University does a monthly survey called the “Purdue/CME Ag Economy Ag Barometer” to gauge farmer optimism regarding the current state of the ag industry and future expectations regarding the farm economy. In recent years, there have been some wide swings in the monthly Ag Barometer data, primarily due to the trade war with China in 2018 and 2019, the Covid pandemic in 2020, and now the rapid rise in commodity prices in late 2020 and 2021. A recent Ag Barometer reading in late April had an average reading of 178, which is just 5 points below the all-time high reading in October of 2020. A year ago in April, during the early stages of the Covid pandemic, the average reading was at only 96 points, which was near the lowest ever recorded. The recent Ag Barometer listed a score of 195 for current conditions in the overall ag economy, as compared to 169 for future expectations for the economy. Some farmers expressed concern over rising input costs and potential future tax policies being considered by Congress and the Biden Administration. By nature, farmers tend to be more optimistic about the future than most other occupations. Most farmers invest several hundred dollars per acre into crop input costs for seed, fertilizer, chemicals and fuel each year, as well as added overhead expenses for land costs, farm machinery, labor, etc. Much of this investment is made before they ever plant a crop in a given year. So outside of some crop insurance coverage, the farmer is carrying most of the weather risk, marketing risk, and financial risk for that crop. In 2021, a typical farmer on cash rented land probably has about $600 to $650 per acre in land
20 • JULY 2021 • MN Valley Business
costs and direct expenses for seed, fertilizer, chemicals, fuel, repairs, interest, etc. invested in the corn crop and about $400 to $450 per acre invested in the soybean crop. In addition, a typical farmer likely has another $75 to $100 per acre in machinery and facility depreciation costs, labor expense, insurance and other overhead expenses. Most farmers also target a minimum of $50 per acre return to labor and management on cash rented acres, which would bring the total crop investment to $750-$800 per acre for corn and $550 to $500 per acre for soybeans. So, a farmer with 1,000 acres of corn and soybeans that is under cash rental contracts that is planted half to corn and half to soybeans will likely have a total investment into the 2021 crop of $650,000 to $700,000. Based on the previous example for expenses, using typical corn and soybean yield targets, the 2021 breakeven price to cover direct and overhead expenses in 2021 would be about $3.75 to $4.00 per bushel for corn and $8.75 to $9.00 per bushel for soybeans. If you include a $50.00 labor and management return, the breakeven prices in 2021 rise to near $4.35 per bushel for corn and $9.75 per bushel for soybeans. If 2021 crop yields are higher than typical yields, the breakeven price to cover crop inputs will be reduced; however, if yields are lower than expectations, the breakeven costs will increase. For example, a 10 percent decline in the 2021 corn and soybean yield, which is typically not covered by crop insurance, would increase the breakeven prices to around $4.75 per bushel for corn and $10.75 per bushel for soybeans. The 2021 new crop price for harvest delivery at local elevators and processing plants has been near $5.00 per bushel for corn in recent months at most locations across Southern Minnesota. The new crop corn prices were below $4.00 per bushel at the start of 2021 and have risen to over $5.50 per bushel at times this Spring. New crop soybean prices for Fall delivery in 2021 have been near $13.00 per bushel in recent months at local elevators in Southern Minnesota, with slightly higher new crop bids at soybean processing plants in the region. The 2021 new crop soybean prices started the year below $11.00 per bushel, rising to above $13.00 per bushel by early May. Local new crop corn and soybean bids for the Fall of 2021 in other regions may be higher or
